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Third-Party Administration (or Administrator; TPA)

Overview

Third-party administration (TPA) is a method by which an outside person or firm, not party to a contract, maintains all records regarding the persons covered under the insurance plan. Entity may also pay claims using the draft book system. Gillian I. Russell, Terminology, in FUNDAMENTALS OF HEALTH LAW 1, 42 (American Health Lawyers Association 5th ed., 2011).

A TPA refers to an independent entity that does not have an insurance, BlueCross, or HMO license. This distinguishes a TPA from an insurer or an HMO that also offers administrative services only (ASO) services in conjunction with its fully insured products. Consequently, health care legal practitioners will frequently find that representation in the managed care industry will include representing managed care entities like HMOs that offer ASO products and also representing those entities licensed as TPAs, that contract exclusively with employers and other entities to manage their health benefit plans. From outside counsel's perspective, the two most frequent areas where legal assistance will be needed by either the HMO/insurer providing an ASO product or the TPA, is to (a) assist that entity in obtaining the appropriate license and maintaining compliance under state law and (b) defending that entity in the event of legal action as the result of operations. Excerpt from Errol J. King, Third Party Administration: Legal and State Regulatory Compliance Issues—Outside Counsel’s Perspective, AHLA Seminar Series 1 (1997).

Authority

A majority of states require a license for an entity to conduct TPA activities. In some jurisdictions, these licensing requirements may also be applicable to HMOs that want to offer a self-funded product. Conversely, it may be enough that the HMO is already licensed to transact the business of insurance under the state’s HMO regulation. While the discussion so far has been to distinguish between an ASO product and a TPA company, it can be easily seen how there can be a blurring of the lines of delineation between these two different types of entities. From an employer perspective, the distinction is not that great. However, a legal practitioner representing clients needs to understand the ramifications of two sets of statutes (HMO and TPA) and that compliance with one set of statutes may not equate to compliance with the other. On the other hand, with regard to liability, claims against TPAs and HMOs are quite similar. Therefore, discussing liability claims against HMOs has particular relevance for TPAs and can be used for support and guidance. Excerpt from Errol J. King, Third Party Administration: Legal and State Regulatory Compliance Issues—Outside Counsel’s Perspective, AHLA Seminar Series 2 (1997).